The market appears to have made significant progress digesting the large number of foreclosed properties left over from the housing finance crisis.

According to real estate marketing firm RealtyTrac, foreclosed property only accounted for 21% of all real estate sold nationally in the first three months of 2013, compared to taking up 25% in in the same period in 2012 and 45% in the same period of 2009.

Properties not in foreclosure that sold as short sales in the first quarter accounted for an estimated 15% of all residential sales, the firm reported. That brought the total share of distressed sales during the quarter to 36%.

Non-foreclosure short sales also trended lower in the first quarter, down 10% from the previous quarter and down 35% from the first quarter of 2012.

“We expected foreclosure-related sales to be lower given the downward trend in new foreclosure activity nationwide over the past two and a half years, but the decrease in non-foreclosure short sales was a bit of surprise given the 11 million homeowners nationwide still underwater,” said Daren Blomquist, vice president at RealtyTrac.

“Rising home prices in many markets are stunting the continued growth of short sales by reducing incentive for both underwater homeowners and lenders,” Blomquist said

“Underwater homeowners may be willing to stick it out a few more months or even years in the hope that they will be able to walk away with money at the closing table and without a hit to their credit rating,” he said, “and for lenders a failed short sale may no longer translate into bigger losses down the road given that average prices of bank-owned homes are rising — at a faster pace than non-distressed home prices in many markets.”

The states with the biggest percentage of foreclosure-related sales were Georgia (35%), Illinois (32%), California (30%), Arizona (28%), and Michigan (28%). States where foreclosure-related sales account for less than 10% of all sales include Massachusetts, New York and New Jersey, according to the firm's data.

The average price of a property in foreclosure was 30% below the average price of a non-foreclosure property in the first quarter, down from a 31% discount in the fourth quarter but up from a 28% discount in the first quarter of 2012, RealtyTrac added.

Instant Insights /

RealtyTrac: Foreclosure Sales Down Sharply

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